TIME: Almanac 1993/TIME Almanac 1993.iso/time/090390/0903010.000

Text File | 1992-08-28 | 6.3 KB | 134 lines

                û                                                              THE GULF, Page 44

Why Are We in Saudi Arabia?


By MICHAEL KINSLEY


    Is it about oil, or is it about order? Those who say the
gulf crisis is about oil note that U.S. military forces would
not be massing to protect one distant feudal monarchy and
restore another if the barren sands of Arabia had nothing
underneath. Those who say it's about something finer --
re-establishing a civilized world order -- argue that we would
not be going to all this trouble if the threat to our energy
supply came in the traditional way: by a meeting of oil
ministers in a Geneva hotel.

    Obviously, both sides are right. It's about oil and about
order. Neither cause alone would lead President Bush to spend
American wealth and risk American blood on this huge scale. But
the debate has focused too much on what we need to achieve to
re-establish order: Saddam Hussein dead, or off his perch, or
out of Kuwait, or merely cowed from further territorial
ambition? We need a clear war aim with respect to oil as well.
And the only such aim that would begin to justify the cost and
the danger is one directed at our beneficiaries, Kuwait and
Saudi Arabia, as well as our enemy, Iraq: the oil price-fixing
conspiracy must end for good.

    The free-market price for oil is something like $10 per bbl.
That is what it sank to in 1986, when OPEC was in total
disarray. At the last OPEC meeting, in July, production quotas
were assigned to achieve a price of $21. That's what our
"friends" the "moderates" wanted. Saddam wanted $25. The
difference between $10 oil and $21 oil means, for the U.S., an
extra $33 billion a year for oil imports. That doesn't even
count an equal sum paid to domestic producers, or the dampening
effect on the economy.

    The extra $11 per bbl. would bring in about $22 billion a
year for the Saudis. But now, thanks to our decision to defend
them from Iraq, oil is selling for over $30 per bbl. That
should temper our gratitude for their decision to pump an extra
2 million bbl. a day. It means another $22 billion or so, plus
an $18 billion premium on the 5.4 million bbl. a day they were
already pumping. Meanwhile, we are paying for the oil and also
paying untold billions to defend their right to pump
unmolested.

    The U.S. has never been clear-minded about our national
self-interest in cheap oil. Republican administrations,
ostensibly devoted to the free market, have tolerated or even
subtly promoted the oil price-fixing cartel. As part of the
Nixon Doctrine in the early 1970s, the U.S. looked the other
way as Saudi Arabia and Iran raised oil prices, hoping they
would spend the money on military equipment and become the
"twin pillars" of Middle East stability. (What a laugh! The
Middle East military machines financed by high oil prices have
been those of Ayatullah Khomeini and Saddam Hussein.) In 1986
Vice President George Bush actually went to Riyadh and begged
the Saudis to reduce oil production in order to "stabilize" --
i.e., raise -- prices.

    Bush's mission was on behalf of America's domestic oil
producers. But as a net importer, America has an overall
national interest in paying as little as possible for oil. The
oil price-fixing cartel is in flat violation of U.S. antitrust
laws. American oil producers are, in effect, auxiliary members.
If the OPEC ministers met in Houston, they could be arrested
on the spot. Perhaps the fact that they meet in foreign
countries makes them immune from our law, but it should not
make them immune from our contempt. And American soldiers should
not die in the desert defending the oil kingdoms' right to
flout the basic rules of free enterprise, to our enormous
detriment.

    But doesn't cheap foreign oil create the danger of
dependency? Well, what is that danger? It is twofold: a run-up
of price and a cutoff of supply. True, our interest is in
paying as little as possible for oil in the long run, not just
today. Too low a price could be sucker bait, discouraging
alternative energy sources and conservation, and setting the
stage for a bigger rip-off tomorrow. It is impossible to say
what price today minimizes the long-run cost of oil for
consumers. What you can say for sure is that oil producers have
exactly the opposite objective: maximum revenue in the long
run. Letting a producer cartel fix the price cannot be good for
consumers.

    And even if $21 oil, as opposed to $10 oil, today would save
us from $50 oil in a few years, why pay that extra $11 to oil
producers? Why not buy the oil for $10, slap on an $11 tax and
pocket the difference ourselves? That would raise about $40
billion a year -- just about enough to cancel the budget
summit. (Last month's crisis. Remember?) A tax on imports alone
would raise half that, allowing domestic producers to keep the
difference. Yet the policy of two Republican administrations --
read their lips -- has been that it is better for the money to
go into the treasury in Riyadh than into the Treasury in
Washington.

    As for a reliable supply, every year that we pay $10 instead
of $21 for foreign oil, we could buy an extra year's supply to
sock away if we wanted to, and we would still come out ahead.
Meanwhile, more domestic oil would remain in the ground for
future use.

    Almost any way you look at it, it is senseless to pay a
penny more than necessary for oil. Consider the environment.
Why aren't conservatives these days clamoring for the
restoration of a free market instead of clamoring to open up
fragile strips of America's coastline? What sense is there in
wrecking Alaska to get at $30 or $40 oil when it flows out of
the Saudi desert for a fraction of that cost?

    Everybody says OPEC will never fully recover from the Saddam
Shock. But that is not good enough. Whatever we are fighting
for, it is surely not so that the oil ministers of Iran, Iraq,
Saudi Arabia and Kuwait can once again drink tea together
around a conference table. There should be a new understanding
that all efforts to allocate production and set prices for oil
are an affront to both the values and the interests of the U.S.
During the first oil crisis in 1973, people who urged an
occupation of the oil fields to end the oil gouge were
dismissed as crazy. Surely occupying the oil fields and not
ending the gouge is crazier.